New Business Owner? Avoid the Pitfalls
Attorney Scott D. Lewis practices in the areas of Corporate Business Law, Estate Planning & Probate, and Tax Law & Personal Asset Protection. Scott has worked with both new and existing business owners providing insight into the potential pitfalls of buying, owning and operating a business. Scott was recently featured in an article published for Buzz on Biz, a local business newspaper circular promoted throughout the CSRA. Read more on the article. . . .
One of the benefits of my job is that I get to connect with some very talented professionals who’ve been there and seen that, and who have proven to be great partners to both business buyers and sellers alike. One of these is Scott Lewis.
Scott is an attorney with Fulcher Hagler, LLP, and is licensed to practice in both Georgia and South Carolina. Scott’s practice focuses on business law, estate planning and tax controversy matters. Scott is also a licensed CPA and holds advanced degrees in tax and business.
I asked Scott to share some advice that comes from his experience with owners of both new and existing businesses.
Q: What are some of the pitfalls that a new business owner should be aware of?
A: New business owners must quickly ascertain what their strengths and weaknesses are when it comes to running their business. Typically, new business owners understand well the product or services they wish to provide, but may have limited functional business knowledge when it comes to “back office” tasks associated with running a business.
Although a highly regarded baker may produce some of the most elaborate cakes or tastiest pastries, if the baker is unable to understand or control his costs he may soon find himself out of business.
New business owners also need to be wary of overextending themselves by trying to run all aspects of their business alone. Sacrificing customer service to attend to matters which are not the business owner’s strengths may cause damage to the business’ reputation and result in lost customers.
Q: What are some ways new business owners can protect themselves?
A: New business owners should surround themselves with professionals who can advise them on those areas of their businesses that are not their strengths. Most competent business advisors spend a great deal of their time “issue spotting” for their clients.
Issue spotting is the process of identifying business risks and making adjustments to reduce or eliminate those risks. Although utilizing business advisors will increase costs, it helps reduce the chance an otherwise avoidable risk will cause the business to close.
Q: If you were going to buy an existing business, what would you want to know about it?
A: Before acquiring any business, the potential business owner should enlist the help of a professional advisor to examine the business’ financial statements to determine if the statements accurately reflect ongoing business operations. The professional advisor will examine things such as year over year growth in sales and net income, debt-to-equity ratios, inventory balances and instances of off-balance sheet financing, all of which could affect the viability of the business. The business owner should also conduct multiple site inspections during normal hours to determine if the business is being accurately represented.
Thanks, Scott! And, hey: Asking for the seller’s sales tax records isn’t a bad idea, either.
In the Main Street business marketplace, most deals are structured as asset sales, meaning the seller takes the debt with him or her, as well as the corporate entity—should one exist—so the new owner should not be liable for any liens or other encumbrances on the business.
However, only a good attorney knows for sure. Make sure you have one on your team today!
This sponsored article was written by Kim Romaner, Business Broker and President of Transworld Business Advisors of Augusta, a business brokerage that helps people buy and sell businesses, and also enter into the franchise world.